California Lawmakers Kill Payday Loan Bill

California lawmakers have defeated a proposal aimed at reducing the size of the state's payday lending industry.

A state Senate committee rejected the measure by a 5-3 vote Wednesday even after its author agreed to changes designed to soften the bill's impact.

The vote was a setback for consumer advocates who tried for years without success to outlaw payday lending in California. This year they tried a new, more incremental strategy — capping the number of payday loans an individual borrower get in a 12-month period — in the hope of garnering greater support.

"We offered new proposals in a spirit of compromise," says Paul Leonard, director of the Center for Responsible Lending's California office, "and were met with a resounding no."

An early version of the legislation would have barred consumers from getting more than four payday loans in a 12-month period. The bill's sponsor, Sen. Hannah-Beth Jackson, eventually proposed raising that number to six.

And in another bid to build political support, Jackson proposed raising the maximum allowable size of a payday loan to $500 from its current level of $300.

But those concessions were not enough to get the bill even past a preliminary vote in the state Senate's banking committee. Technically the measure could still be revived, but its supporters believe that's unlikely.

The bill drew opposition from the payday industry, which makes more than $3 billion in loans each year from more than 2,000 stores across the state. Industry representatives argued that the bill's restrictions would simply redirect the consumer demand for short-term loans to less reputable companies.

"Consumers will have to go someplace to find that credit. And the unlicensed, unregulated Internet is one place they will turn," says Greg Larsen, spokesman for the California Financial Service Providers Association, which represents payday lenders.

Voting against the measure were Democratic Sens. Lou Correa, Ron Calderon and Richard Roth, along with Republican Sens. Tom Berryhill and Mimi Walters.

The bill was supported by Democratic Sens. Jim Beall, Ellen Corbett and Jerry Hill. Democratic Sen. Ben Hueso did not vote despite being present at Wednesday's hearing.